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The Inflation Reduction Act of 2022


The Inflation Reduction Act of 2022 is significantly smaller than any proposed version of the Build Back Better Act. As such, nearly all of the revenue-generating provisions of prior proposals have been eliminated. Only the corporate alternative minimum tax, the excise tax on stock repurchases, and increased IRS funding have survived from prior versions.

Corporate Alternative Minimum Tax

The Inflation Reduction Act of 2022 would resurrect the corporate alternative minimum tax (AMT) which was eliminated by the Tax Cuts and Jobs Act, although it returns in a slightly altered form. Proposed to be effective for tax years beginning after 2022, the new corporate AMT would equal 15 percent of the corporation’s “adjusted financial statement income” for the tax year, reduced by a corporate AMT foreign tax credit. The tax would only apply to corporations with average annual adjusted financial statement income in excess of $1 billion for the three prior tax years. This threshold is reduced to $100 million in the case of certain foreign-parented corporations. Certain exceptions also apply to the determination of an applicable corporation where there is a change in ownership or a consistent reduction in income. A corporation’s adjusted financial statement income is the amount of net income or loss the corporation reports on its applicable financial statement, for purposes of determining when to include income for tax purposes. That amount is adjusted for various purposes, including certain adjustments in the case of consolidated returns or for certain foreign income. In negotiations shortly before passage in the Senate, two carveouts were added to the new alternative minimum tax, excepting corporations that are involved in certain manufacturing, as well as corporate subsidiaries of private equity firms from the tax.

Stock Repurchases

The bill includes a one percent excise tax on stock repurchases by domestic corporations whose stock trades on an established securities market. A repurchase is a redemption, or any transaction determined to be economically similar to a redemption. The tax also applies to the purchase of the stock of a specified affiliate corporation, which is a corporation more than 50 percent owned (by vote or value) by the purchasing corporation, or a partnership in which the purchasing corporation holds more than 50 percent of the capital or profits interest. Separate rules also apply to tax certain purchases of the stock of a foreign affiliate. The tax would apply to repurchases after 2022.

Passthrough Loss Limitations

The bill also includes a further extension of the excess business loss limitation as it applies to partnerships and S corporations, through 2028. The provision is simply a revenue raiser, and was last extended for the same purpose by the American Rescue Plan Act of 2021

IRS Funding

A significant strategy in coming up with ways to pay for a large legislative package is by improving IRS service to close the “tax gap.” The tax gap is the difference between what should be collected by the IRS and what is actually collected by the IRS. In many cases, the lack of IRS resources to enforce the nation’s tax laws can be leveraged by taxpayers to lower their tax bills, and it is believed that a small investment in IRS resources can lead to an outsized increase in revenue. The bill looks to close the tax gap by allocating an increased amount to the IRS to improve enforcement.


There are no changes to the Internal Revenue Code to implement this improvement in IRS enforcement. The Build Back Better Act included some provisions relating to penalty assessment and backup withholding for third party settlements, but those have been eliminated. This provision only increases the IRS budget, so there is no direct impact on taxpayers (though there could be an increase in examinations due to the budget increases)


The bill would extend Affordable Care Act provisions from the American Rescue Plan Act of 2021. Specifically, the expansion of affordability percentages used in calculating the premium tax credit to make credits available for individuals with incomes above 400 percent of the federal poverty line, as well as credit amounts for those already qualified, would apply through 2025. Without the extension, these provisions would expire at the end of 2022.


In tax years beginning after 2015, certain qualified small businesses are allowed to claim a limited amount of the research credit against payroll taxes. Under the proposed Inflation Reduction Act of 2022, in tax years beginning after 2022, the amount of this limitation is increased from $250,000 to $500,000.


The majority of the outlays in the Inflation Reduction Act of 2022 are devoted to incentives for green energy. A large share of those outlays are in the form of tax credits for green energy.

In some cases, the credits are extensions and expansions of current credits, such as those for electric vehicles or residential energy property. However, the bill also proposes new credits, such as those for the production of clean electricity.


This is the largest portion of the Build Back Better Act to survive the new bill. Most of the energy tax credits that were in the original proposal are here, though in some cases modified or with an altered

termination date.

Electricity Produced from Renewable Resources

The proposal extends the credit for electricity produced from certain renewable resources through 2024. An increased credit may be claimed if the entity meets certain workforce and wage requirements in construction or operation of the facility.

Energy Investment Credit

The energy investment credit is also extended through 2024, with workforce/wage credit enhancements like the renewable electricity credit. An enhancement of the credit is also available for solar facilities placed in service in connection with low-income communities.

Elective Direct Payment

In lieu of a tax credit, entities can elect to claim a direct payment for certain energy projects. The credits for which a direct payment can be claimed include the alternative fuel refueling property credit, the renewable electricity production credit, the carbon oxide sequestration credit, the energy investment tax credit, and the qualifying advanced energy project credit. A penalty will apply if the taxpayer receives a larger direct payment than the credit to which it is entitled.

Residential Energy Incentives

The credit for nonbusiness energy property, which expired at the end of 2021, is modified and extended through 2032 by the proposal. This credit applies to energy efficient windows and doors, as well as certain HVAC systems and heat pumps, and the lifetime maximum for the credit is replaced with an annual limit of $1,200. The residential energy efficient property credit, renamed the clean energy credit, is extended through 2034.

Clean Vehicles

The credit for the purchase of clean vehicles (which includes both plug-in electric vehicles and fuel cell vehicles) is extended through 2032, and modified, under the proposal. The proposal eliminates the current credit’s limitation on the number of vehicles produced by a specific manufacturer. However, the credit imposes sourcing requirements on the critical components of the vehicle and battery systems. The maximum amount of the credit remains at $7,500, but includes income limitations, as well as limitations on the manufacturer’s suggested retail price. A new credit of up to $4,000 is also available for the purchase of a previously-owned clean vehicle, subject to income limitations, through 2032. The bill also proposes a new credit for up to 30 percent of the basis of a qualified commercial clean vehicle acquired after 2022 and before 2033.

Other New Green Energy Credits

Additional new credits to encourage the growth of the green energy industry proposed in the Inflation Reduction Act of 2022 include the following: A credit of .3 cents per kilowatt-hour for energy produced from a zero-emission nuclear power facility, after 2023 and before 2033; A credit for sustainable aviation fuel sold or used after 2022; A credit for the production of clean hydrogen after 2022;

Other Extended and Modified Green Energy Credits

The Inflation Reduction Act of 2022 also proposes modifications to other existing energy credits while also extending them. The bill’s proposed changes include: The carbon oxide sequestration credit is modified and extended through 2032; Incentives for biodiesel, renewable diesel, alternative fuel, and alternative fuel mixtures are modified and extended through 2024; The credit for second generation biofuels is extended through 2025; The energy efficient commercial buildings deduction is modified for tax years beginning after 2022; The new energy efficient home credit is modified and extended through 2032; The alternative fuel refueling property credit is increased and extended through 2032;


Several provisions were removed from the version of the bill that passed the House as the Build Back Better Act. Many of the proposals that were billed as promoting “human infrastructure” were eliminated. These include provisions that extended COVID-era expansions of the child tax credit and earned income tax credit.


Some economists believe that the expansion of credits in 2021 played a part in leading to high inflation. As this legislation is billed as something to reduce inflation, it is not surprising to see these provisions dropped. The Build Back Better Act also included the restoration of the individual deduction for state and local taxes (the “SALT deduction”). The Inflation Reduction Act of 2022 does not include a restoration of the SALT deduction. During the Senate amendment process, an extension of the current cap on the SALT deduction for two years as a revenue raiser was quickly replaced with the two-year extension of the excess business loss limitation. An extension of the SALT cap beyond its current 2025 expiration would have likely sunk the bill with Democratic representative in higher-tax states. Finally, the Inflation Reduction Act of 2022 does not include any of the proposed changes for international taxpayers that were included in the Build Back Better Act the House passed in 2021.

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